Now more than ever, Federal and state agencies are checking to see if businesses are meeting business operation requirements due to the increase of fraud activity. "The Fraud People" pretending to be legitimate businesses in order to fraud consumers or falsify records for business funding and government contracts. This is also referred to business or corporate compliance.
What is Corporate Compliance?
Corporate compliance is a business follows both federal and state rules in order to operate legally. With so much disruption and distraction this year, you may have fallen behind keeping up with compliance for business licenses, permits, and identification numbers. Here’s a business checklist to get you back on track.
Federal Tax ID - Getting a Federal Tax ID number (or an Employer Identification Number—EIN) is optional if you’re a sole proprietorship, but if your business acts as a Corporation, Limited Liability Company, or a partnership, you and your business clients are required by law to have one.
Federal Licenses and Permits - If a business is regulated by a federal agency, you most likely need a federal license or permit. Businesses selling, manufacturing, importing, or wholesaling alcohol, for example, are regulated by the Alcohol and Tobacco Tax and Trade Bureau.
State and Local Licenses and Permits - Most of the required licenses and permits for businesses will come from your city, county, and state business development offices. Start with a business license in the city where the business is located. You’ll need to provide data on your business, make sure you’re in zoning compliance, and pay an annual fee. Your local government makes sure your business is operating safely and according to specific regulations and procedures determined by location and industry.
Sales Tax License and Reseller Permit - A business selling products and services subject to sales taxes will need a sales tax license from the state tax authority office. Selling in more than one state? You’ll need a license in each state. Sell taxable products on a wholesale basis to retailers? You’ll need a reseller license (resale certificate)which gives a business permission to sell taxable products without collecting sales tax. Having to collect sales tax usually occurs when a business has a physical presence (or a nexus) in a state. However, there are circumstances (e.g. online businesses) where state laws consider the business to have nexus without a physical presence.
Payroll Compliance for Employers - Once you’ve acquired an EIN, you must register with your state’s labor department before you bring on employees. You’re required to pay state unemployment compensation taxes. Depending on your business type, you may also be required to get workers’ compensation insurance. The IRS also requires each employee to fill out IRS Form W-4 (Withholding Allowance Certificate), so you can determine the right amount of taxes to withhold and Form I-9 (Employment Eligibility Verification) to verify each employee is eligible to work in the U.S.
Moving a Business to a New State - If you or your clients are planning on moving your business to a new state, it’s important to cancel local business licenses and permits before applying for new ones in your new location. Also, be sure to withdraw the business name from Secretary of State’s office and apply for a new one. The IRS needs a change of address for the EIN. Corporations and LLCs can either dissolve the corporation in the old state and re-register in the new state or file a foreign qualification in the second state.
A foreign qualification allows a business to do business in a different state than the home state of the business. The process involves submitting a Certificate of Authority (or Statement and Designation) application form and paying fees to the Secretary of State office. Next, you need to hire a registered agent in the new state to handle official federal and state correspondence, tax notices, and corporate filing requirements.
Amendments and Modifications - In most states, an amendment to the Articles of Incorporation or Articles of Organization is required if a business is making any changes to an existing corporation or LLC. An amendment is the official notification of changes within the company’s organization of your company.
Closing a Business - If you or your client closed or are planning on closing a business this year, it’s important to legally close the business. Without properly closing the business, the government still expects compliance for filing annual reports, filing state/federal tax returns, and maintaining miscellaneous business licenses and filings for the closed business. To formally dissolve, the company needs to notify all the states in which business is transacted. Corporations, LLCs, and partnerships must hold a meeting with all partners and board members and vote to close the business and then document the vote in the meeting minutes. Then the business must file a form called “Articles of Dissolution,” “Certificate of Termination,” or “Certificate of Dissolution” with the Secretary of State’s office in the state where the LLC or Corporation was formed.
Changing Your Business Structure - Your business is starting to grow and you may need more more asset protection or want to take your business public. Switching entities is possible if you take the proper steps. Going from a sole proprietorship to a corporation or LLC means conducting a name search for the entity’s new name and filing the correct documents with your state, such as the Articles of Incorporation. To change from an LLC to a C Corp, all members must vote for the change in structure and then file a document with the state called a “statutory” conversion.
Reinstatement - If a Corporation or LLC fails to follow its corporate requirements, the company is at risk of not only losing its good standing with the state, but it can be “dissolved” or be placed in a non-compliant status by the Secretary of State. This is important because when a business is non-compliant, it can lose rights to copyrights, patents, trademarks, and service marks. The owners and responsible parties can be held personally liable while conducting business operations.
We’re Here to Help!
As businesses and governments slowly get back to business, you may find it difficult to walk into a licensing office to acquire the proper licenses and permits. Start by visiting your Secretary of State and city’s business development websites. Or you can hire us to do the work for you, so you can focus on your business operations. We are partnered with a national registry that enables us to service a business in any state to maintain business compliance.
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